One day in the life of a very common stock

Using the model structure of Easley and O'Hara (Journal of Finance,47, 577-604), we demonstrate how the parameters of the market-maker'sbeliefs can be estimated from trade data. We show how to extractinformation from both trade and no-trade intervals, and howintraday and interday data provide information. We derive andevaluate tests of model specification and estimate the informationcontent of differential trade sizes. Our work provides a frameworkfor testing extant microstructure models, shows how to extractthe information contained in the trading process, and demonstratesthe empirical importance of symmetric information models forasset prices.